as per Peterlynch book once up on wallstreet
1 mens fairly value above it overprice below it under valued.
PE and EPS growth rate similar then PEG ratio is 1
What is PEG Ratio?
Price= Market Price of the Stock or Marketcap
Earnings: Net Income or Earnings Per share EPS.
G: Earnings growth of projected based on fast 3 years or 5 years. (ceck previous years EPS growth)
PEG Formula: (P/E Ratio) / Trailing EPS Growth Rate
Ex: PE: 28.2
P/E Ratio [ 28.2 ] (/) EPS Growth Rate * 100 [ 6.6 ] (=) PEG Ratio [ 4.3 ]
he tables below summarizes the trend in SBI Cards and Payment Services’s PEG Ratio over the last five years:
| Date | P/E Ratio | Earnings | EPS Growth Rate | PEG Ratio |
|---|---|---|---|---|
| 2020-03-31 | 41.3 | 1,245 | NA | NA |
| 2021-03-31 | 97.8 | 985 | −38.0 | −2.6 |
| 2022-03-31 | 66.4 | 1,616 | 36.7 | 1.8 |
| 2023-03-31 | 31.2 | 2,258 | 84.7 | 0.4 |
| 2024-03-31 | 28.2 | 2,408 | 6.6 | 4.3 |
an investor must compare a stock’s PEG to average PEG’s across its industry and the entire economy
PEG Ratio Example
Let’s assume an organization named XYZ having a P/E ratio of 20 and an yearly or annual earnings growth rate* of 20%.
20/20=1
example 2: 15/20=0.75
However, to find out the ratio, divide the P/E ratio by the earnings growth rate, that offers a result of 1. A PEG ratio below 1, like 0.75 in this case, suggests the stock may be undervalued relative to its earnings growth.
In other words, investors are paying Rupees 1 (as per PE) for every 1% of expected earnings growth. This indicates potential value, making ABC Inc. an attractive investment opportunity, as the market price does not fully reflect its growth potential.
annual earnings growth rate may change based many factors*. credit goes to 5 paisa
PEG Ratio 1 means PE and EPS growth rate same
EPS>PE Means
